It's no secret that many in the Bitcoin community suffer from a severe allergy to financial regulatory agencies. It seems that every time the suits step in (as they did this spring when the Department of Homeland Security seized the assets of Mark Karpeles, the CEO of the largest online Bitcoin exchange) histamine levels flare and the mucous membranes start running. This week, however, the U.S. Securities and Exchange Commission is doling out some discipline worthy of even the most ardent Bitcoiner's praise.
Yesterday, the agency filed charges against a man in Texas suspected of luring Bitcoiners into a Ponzi scheme that ultimately defrauded investors of at least 700 000 bitcoins, an amount now worth over US $65 million (as calculated with the Mt. Gox exchange rate). And rather than bemoaning the regulatory actions, many are applauding it.
"I think that it's great, as more people will view the currency as 'legit' instead of 'play money' if it actually gets regarded as real money in the court system," wrote one Bitcoiner on an online forum.
It was on the same forum, in 2011, that an anonymous poster, taking the name Pirate40 began soliciting investors for Bitcoin Savings and Trust, an enterprise that ostensibly made money while buying and selling bitcoins on local markets, but which now seems to have never existed. The pitch (predicting up to seven percent returns on investments, paid out weekly) seduced some and raised flags with others. At his peak, Pirate40 claimed to have amassed 500 000 bitcoins (SEC calculation were higher) from the more gullible souls on the forum. It was only when he lowered the estimated earnings from seven to five percent that the community agreed that something fishy was going on and slapped a scammer tag onto his forum profile (the equivalent of being thrown into the stocks on this particular social network).
Apparently in response to complaints filed by some of the victims, the SEC has now tracked down the true identity behind the Pirate40 screen name, one Trendon T. Shavers, confirming detective work that had already been carried out by vigilante gumshoes in the Bitcoin community.
Pirate40 is one of many pariahs in this untamed and largely unregulated new economy, which in its early days attracted a colorful menagerie of scammers and con artists. Although the community has adopted its own breed of punishment for these outlaws (primarily by tracking and shaming them), it will surely benefit the Bitcoin community to welcome a more professional clean-up crew. If nothing else, it means that the U.S. government is taking the currency seriously.
This, at least, was clear from the SEC filing. "Fraudsters are not beyond the reach of the SEC just because they use Bitcoin or another virtual currency to mislead investors and violate the federal securities law," warned Andrew Calamari, the director of the SEC's New York Regional Office.
At this point, it would be a miracle if his victims received justice in any material form. The SEC claims that Shaver was spending the investments lavishly on food and rent, while gambling with the leftovers.
So perhaps the best news in all this: We may soon get to watch a lawyer attempt to describe Bitcoin to a jury of peers. Some things are worth waiting for.
Illustration: Handcuffs, iStockphoto, Bitcoins, Casascius